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Saturday, July 16, 2011

There’s no better evidence that Labour is on to a winning issue with its proposed capital gains tax (CGT) than the full panic mode New Zealand’s rightwing is now engaged in. The right is completely beside itself.

The proposal has been met with strong praise from across the political spectrum. This has left the National Party flailing about looking for a coherent response other than, as John Armstrong put it in his NZ Herald column, avoiding it because National Party supporters would “skin Key and English alive if they introduced” a CGT.

So instead of a credible response, National has resorted to suggesting there’s a “hole” in Labour’s numbers, a tactic that reinforces how wonky National’s own numbers are. They also had Bill English give what must be his fourth excuse as to why National wants to sell-off state-owned assets to foreign investors. Definitely not National’s best moments or most coherent political discourse (they use their own bad policy positions to attack Labour—not very smart).

Most of the loudest criticism has come from the greedy, self-interested folks who, potentially, might have to actually pay their fair share of taxes for a change.

One such critic trotted out by the Herald was David Whitburn a rental property tycoon who, the conservative newspaper wants us to know, had $7000 and a handful of shares nine years ago, but now has more than $1 million equity in his properties. He called the tax “nasty” and vowed “I’m not selling, ever.” Well, then, the tax won’t affect him, so why the moaning? My guess is that he actually wants to sell at some stage, but doesn’t want to have to pay any taxes.

As Wellington’s Dominion-Post said in an editorial, “It is not fair that a worker earning $50,000 is taxed on every cent while someone who sells an investment property for a $50,000 profit pays nothing.” Does David disagree with that? Does he really think that the hard-working people of New Zealand should pay taxes so he doesn’t have to? Apparently so.

Digging a deeper hole for himself, he told the Herald:

"[People] can earn higher wages in Australia, and investing in New Zealand with a friendlier property tax climate is what's keeping them here. Why would they invest in New Zealand when they can get better capital in Australia?”

That’s utter nonsense. People may very well move to Australia for higher wages, but taxes are NOT a reason people move to or from New Zealand. Overall, taxes are higher in Australia than in NZ, and taxes and fees relating to property are much higher in Australia. That won’t change if New Zealand adds a CGT—which Australia already has, of course.

He also claimed rental prices would rise as fewer people buy rental properties. Maybe. But it’s equally possible that there will be little or no change as property companies—who pay their taxes—take over the rental market from “get rich quick” investors.

It’s in the national interest to move investors away from property: They suck up money that could be invested in businesses and industries that build the economy, create jobs and bring in foreign income. Property investors do none of that (and no, maintenance and construction contractors don’t count as “creating jobs”—such work would be needed no matter who owned the property). The sector is such a drag on the economy that Reserve Bank governors keep talking about the need to get us off our addiction to property, and to move money into productive investments. A CGT could help do that by ending the tax rort enjoyed by property speculators.

The multi-national consultancy corporation Ernst & Young is bizarrely claiming that the CGT is "death duties" by stealth. Why? Because “most New Zealanders, at some stage, will inherit a property or some other assets, and the minute they sell, they are taxed at the original cost." Scary—and complete nonsense.

Some New Zealanders may inherit, say, their parents’ house. If they choose to sell it, they may indeed have to pay CGT (we’re all guessing about that, since no law change is before Parliament). However, E&Y ignores many important points.

First, people in NZ move around a lot. It’s highly improbable that “most New Zealanders” would ever inherit property that had been purchased, originally, 50 or 60 years earlier. What they also ignore is that the value of assets will be fixed in 2013, so the CGT will apply to capital gains realised after that date. In other words, “most New Zealanders” will see little or no CGT. Finally, there will be no CGT on personal property and collectibles. So, anyone inheriting such personal effects from their parents’ won’t pay any CGT if they sell the property.

The reactions of landlords and E&Y sound like people taking advantage of the current tax rort desperately trying to get ordinary New Zealanders to allow them to continue to avoid paying any taxes on their unearned income. They are promoting their own selfish interests, or those of clients, at the expense of the country.

Labour has a fair and moderate proposal that will help make New Zealand’s tax system fairer for ordinary Kiwis, and making sure the greedy and the rich pay their fair share of taxes. No wonder the conservatives are against it.

The evidence is becoming clear that Labour is right, National and the other conservatives are wrong.

2 comments:

Also (re: "stealth death duties"), in other countries, if property is inherited, the value to the new owner is at the time of inheritance. Which means, if the person were to sell, they would have a higher cost basis than the original basis.

Who knows if that would be written into the legislation? It could easily be done, though, if that is a legitimate concern.

(And, embarassed that the company I used to work for is saying such shit.)

I think the most important thing isn't that E&Y is making things up about the CGT (because there's no bill before parliament), but instead that they're assuming the worst possible scenario, despite there being absolutely no indication that Labour would do that.

Until a bill is actually introduced, we all can only go by what Labour has actually proposed so far, and nothing that E&Y mentioned is actually in it. And that's dishonest, but also sad.